Slack Technologies (WORK) likely to report a wider loss in Q3

Slack Technologies Inc. (NYSE: WORK) is slated to report its earnings results for the third quarter of fiscal 2020 on Wednesday after the market close. The bottom line will be hurt by stock-based compensation and related employer payroll taxes arising from the performance vesting condition satisfaction.

The company has completed a direct listing of its Class A common stock on the NYSE on June 20, 2019. The company depends on the growth of a paid customer base and aims to attract larger organizations to Slack for growing the number of paid customers above $100,000.

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This remained the key indicator for the growth of its business, including success in expanding the number of users within a paid customer, providing the functionality required by large organizations, and developing its direct sales force. The company’s paid customer base has risen from 73,000 on July 31, 2018, to about 100,000 as of July 31, 2019.

Despite this, the company has been burning a hole in its pockets as the direct listing is hurting the free cash flow, which is predicted to be in the $100-110 million negative range for the full year 2020. Slack has been feeling the pressure from other companies as it remained weak of turning its top line into strong cash flows from operations.

Slack is struggling to get better returns on the invested capital due to the rapidly decelerating revenue trends. Also, the company continues to be hit by cheaper products from its competitors. Investors remained concerned about the company’s future growth, which turned uncertain due to the macro-economic conditions.

For the second quarter, Slack Technologies posted a wider loss due to higher costs and expenses. The 52% growth in calculated billings drove the top line higher by 58%. For the full year 2020, the company predicts total revenue of $603-610 million, calculated billings of $740-760 million, and an adjusted loss of $0.42-0.40 per share.

Analysts expect the company to report a loss of $0.08 per share on revenue of $156.02 million for the third quarter. For the third quarter, Slack Technologies expects total revenue in the range of $154-156 million and an adjusted loss of $0.09-0.08 per share.